It appears even Indian demand for gold falls under the age old supply/demand dynamic of Economics 101. Despite a cultural affinity for the yellow metal, sky high prices are finally having a real impact on end demand. The WSJ takes a look:
- Many Indians are either scaling back or eliminating their gold purchases outright. The drop-off in demand is exposing cracks in what gold investors have traditionally perceived as a solid support for global prices. With many of its religious and cultural traditions steeped in the precious metal, India historically has been the world’s biggest consumer of gold, much of it cast into jewelry. Gold plays a particularly important role in wedding ceremonies, and physical demand for gold usually rises significantly in the fall and winter, which are considered auspicious times for getting married.
- This year, however, the wedding season dovetailed with a rapid depreciation of the rupee against the dollar as investors fled India amid jitters about the broader economy. India’s imports of gold fell to 20 million metric tons in November, down as much as 75% from a year earlier, according to estimates from the Bombay Bullion Association, an industry group for the country’s gold dealers.
- Many investors and analysts believe that is a key reason why gold prices haven’t bounced back even though concerns about Europe’s debt load and the viability of euro persist.
- Roughly a third of global demand for gold in the form of jewelry, or 649.9 metric tons, came from India in the year ended Sept. 30, according to the World Gold Council. Ornate necklaces, armlets, earrings, bangles, gold chains and finger rings are an essential part of a Hindu bride’s trousseau and are usually bought by her parents.
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